A few years ago, I wrote a piece on Rediff titled “Who Needs Software Products”. The Rediff business editor at that time added “…Services are Prime” to the title and totally took the punch out of it, but that’s a different matter (one of the reasons I decided to do my own blog!)

Anyway, in that article I posited the following:

1. The products business is very, very different from the services business.
2. The Indian services business is very profitable and the software business not always so.
3. The services business was far from becoming commoditized.
4. There were other opportunities for services companies to create IP (Intellectual Property) and gain competitive advantage instead of getting into licensed software.

Looking back, much has changed since then. Four years is a new generation in tech land. But by and large I would still stand by my conclusions four years ago as they pertain to the licensed software business.

But the thing is, the business of software has changed quite a bit. Licensed software as a business model is well past its prime. Now its about on-demand, hosted software sold on a subscription basis. For consumers and small businesses, this model is almost de rigueur for new products. With time, this will catch on in the large enterprises as well. Witness Salesforce.com’s recent success with Fortune 1000 companies.

On-demand, hosted software is often called SaaS or Software as a Service. Notice the word “Service” in it. SaaS brings the business of software closer to IT Services. Revenue characteristics of a SaaS business are more like an IT Services company. Other than that, there are more dissimilarities than similarities.

But take a little bit of BPO and add SaaS (sorry, couldn’t resist it!) and it gets really interesting. What you get is what is generally referred to as “platform BPO”. I googled “platform BPO” and a sample of what I got was not frightfully illuminating, so I won’t reproduce it. Actually, it is pretty simple to explain it. Just imagine your company had a payroll department that paid everyone, deducted taxes and took care of all the processes associated with paying employees their salaries. Now think of how it is done today. If you are in the US, your company, almost certainly is outsourcing its payroll to an ADP or Ceridian. ADP has the software and the services associated with the entire payroll function so you really don’t have to do anything more than specify each employee’s salary and bank account routing numbers. ADP doesn’t charge separately for the use of software and services. It bundles both together and charges a fee that varies by number of employees or size of payroll.

To a casual observer, platform BPO should be right up the alley of Indian IT Services players. Service delivery requires building software and providing BPO services. They do both. And the cost arbitrage is doubly advantageous.

However, that is not the entire story. Platform BPO is like the software business in many important ways. High initial investments require a pretty good understanding of the product-market space. Investing large sums of money requires confidence that comes more from understanding the customer and market than from a spreadsheet. Software companies have this in their DNA. Getting stuff done offshore is a little difficult, but not insurmountable. What is harder for them to do is to run a services operation. That is certainly not in their DNA. Yet, there are software companies like Amdocs who derive a large part of their revenue from platform BPO type services. Another area ripe for platform BPO type services is Analytics and Business Intelligence. Expect to see BI software companies making a play for a piece of the action.

What can Indian IT Services companies do? I know of smaller companies seriously pursuing platform opportunities. Unfortunately, they may not have the resources to make it happen. The larger companies, on the other hand, will find it harder to develop platforms through a top-down approach. Their best bet is to encourage skunkworks projects and hope that the ones with potential will show enough promise to justify investment. A greatly more expensive way of getting there is to acquire companies with platforms. Expect to see more of the latter.

14 Responses to Platform BPO

Hi Basab,
In the whole article I was trying to find where value was being articulated.
HR outsourcing has some metrics like how long a new-hire stays with the company and the economic value added by the individual. Can the software service companies take up ADP’s work which is a part of a larger puzzle of employee compensation and management? some companies of employee size less than 200 in bangalore outsource their tax planning, payroll to E&Y.

To export this model to US,this will require a significant onsite presence and a local Garb. Here-in lies the advantage of getting listed in the host country where maximum revenue is going to be generated. This does get brownie points from companies which are going to use platform bpo. Are cross-holdings a solution?

-The other advantage I see is that it will free people from the bondage of working long nights :)in traditional BPO’s which might fracture the fabric of our society .
Would you call a combination of finacle and outsourcing of bank back-office operations to progeon a platform BPO?

Good article and i especially liked “Another area ripe for platform BPO type services is Analytics and Business Intelligence. Expect to see BI software companies making a play for a piece of the action”. Good insight Basab as i ve already seen this in US.Not many people in DWH BI may be aware but there are already a few leaders in this.

Platform BPO to me is a combination of Domain and Technology. Indian BPO companies are not wanting to invest in Domain and build platforms. Now the only other possibility is to Buy a company with Domain and Technology.

The problem with this route is that these solutions are transaction centric and not process centric. BPO companies have to add the process layer and this needs IT skills. Hence Platform BPO remains a sales pitch rather than a scaleable and a viable solution.

Few large players like Accenture, IBM and Genpact are buying for eg. SAP and building the Process management layer and go to market with a platform building. Other IT backed BPO’s like Infosys/TCS/CTS are using their IT skills to do a combination of build and buy.

In a nutshell Platform BPO is more a wish list rather than something concrete. Its interesting that the HR domain is the most suitable for Platform and SAAS model like the author mentions ADP and Ceridian have been doing it for many many years…..

There are several forces at play here that puts the whole Platform BPO paradigm at a very interesting stage today

1. The customer angle
– clients have accepted the Saas model and hence are more open to vendor owned platforms
– clients are looking for ways to shift cost structure from Capex to Opex
– Clients are now looking for their vendors to go beyond labor arbitrage and bring in creative solutions and pricing models

2. The BPO vendor angle
– reflective of the last point mentioned above – they are looking for ways to differentiate
– platform BPO pricing can be linked to business outcome or value (transactional pricing, value based pricing) etc hence gives BPO companies ways to grow revenue in a non-linear fashion

3. The software vendor angle
– They’re looking for ways to increase revenue and hence using BPO provider as another channel to reach new clients especially in the mid market (see SAP’s own aggressive mid market campaign in the US)
– they are being more flexible and not insisting on the BPOs spending a zillion bucks on licenses upfront

b. Ideally the technology platforms should be true multi-tenant environments – but am not betting on that yet..that is the next generation platform BPO for most processes/solutions. Multi-tenancy will also allow BPOs to operate using shared services/resource models – which means lower costs for clients as well.

In the overall equation, the software vendors are the ones who lose out..but most of these guys are heavily overpriced and it is time for a reality check. And I think they realize it. Thanks Salesforce.

Smart BPOs will pick their platform BPO battles and craft their solutions carefully thinking through all of these factors.

Medical Billing, Claims Adjudication has both SW players, BPOs and a few Platform BPO players. Look at a firm called athenahealth that does Transactional stuff.

Equinox is a company that specializes in Mortgage process and “I think” also has a Software to support it.

There is a company that tracks Medicine Sales Worldwide and provides Data, Analytics services to all the Big Pharma companies.

Fedex,UPS, and all the other logistics playes .. provide NOT only the shipping service – but also logistics, planning, tracking .. through use of their Software (and each one is custom – providing the differentiator). In a wide sense could this also be called platform BPO, though NOT pure play as they need physical assets ?

It seems like there could be a Platform BPO opportunity for many verticals or non-core Horizontals. But its not easy to spot one – at least to me. Or maybe I am limited by my linear thinking. Any more examples or ideas ?
Plug: Would like to start one or associate with one.

All companies are focussing on a horizontal platform offering. I havent come across anyone going the vertical way..After a point in time, horizontal will pan out. Greater scale and profitability will come only from vertical offering..